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Taxation of Financial Intermediation

This website reports on a research project completed by the Development Research Group of the World Bank and funded by the World Bank's Research Support Budget.

A good tax system for the financial sector should:(a) be corrective of known distortions(b) minimize the distortions it imposes(c) not push tax collection from the sector beyond the point where marginal distorting costs exceed those elsewhere in the economy.

The project addressed these features focusing on domestic financial intermediation in middle-income emerging markets.

What makes financial sector taxation different?

The large number of handles for taxation

explicit and implicit

often employed by governments with limited taxing capacity.

Sector prone to market failure: taxation can play a corrective role.

Measurement of income and value-added of financial intermediaries is complicated